TORONTO, Sept. 22, 2015 /CNW/ - Significant drought conditions weakened
Saskatchewan's economic growth this year, but the province is expected
to rebound in 2016, according to the latest RBC Economics Provincial Outlook released today. RBC forecasts real GDP to decline by 0.6 per cent in
2015, down from the 1.6 per cent increase projected in June. Still, RBC
expects growth in 2016 of 2.5 per cent, an increase from the 1.9 per
cent previously forecasted.

RBC's downward revision to Saskatchewan's economic outlook mainly
reflects the emergence of drought conditions in agricultural regions of
the province. RBC's positive forecast for 2016 is based on the
assumption of a return to more normal weather conditions and the bounce
back in agricultural production that should come with it. That said,
the recovery in 2016 is expected to be tempered by continued, albeit
lessening, declines in the energy sector.

"Economic activity in Saskatchewan has historically been buffeted by
swings in three main outputs: agricultural crops, energy, and potash,"
said Craig Wright, senior vice-president and chief economist, RBC.
"While we expected the drop in oil prices to weigh on energy sector
activity both this year and next, our June assumption of a gain in crop
production did not materialize because of drier-than-normal weather.
Potash production has been a bright spot in 2015 and continues to show
signs of growth that we expect will continue through the remainder of
the year."

Crop production numbers released by Statistics Canada in August
confirmed the negative effect of the drought, with production of the
three largest crops in the province projected to drop by 14 per cent
relative to year-ago levels. Some precipitation eventually emerged late
in the 2015 growing season, following Statistic Canada's preliminary
tally, though RBC's expectation is that crop production will still
likely decline by 10 per cent in 2015. For 2016, RBC assumes a return
to more normal growing conditions, which should reverse this decline,
with crop production rising by 12 per cent.

Indications of weaker-than-expected capital spending in the province
also resulted in a downward revision to the 2015 growth forecast.
Statistics Canada'sCAPEX survey indicated that the private and public sectors plan to reduce
spending in Saskatchewan by 13 per cent in 2015 after a 2 per cent drop
in 2014. This largely reflects a 33 per cent decline in spending in the
energy sector, as well as a lesser decline of 12 per cent in the
non-energy mining sector.

"With our expectation of only a modest rise in oil prices in 2016,
investment spending is likely to continue to decline in 2016, although
at a moderate rate relative to 2015," added Wright.

Following a strong start in the first half 2015, potash production in
Saskatchewan is expected to continue growing in the latter half of the
year. While the pace of production has slowed from double-digit gains
at the start of the year, the overall increase in 2015 is still
expected to match the 6 per cent increase recorded in 2014. A
strengthening U.S. economy is expected to allow this growth to last
into 2016.

Continuing demand for potash has contributed to an increase in capital
spending on various projects in this sector in Saskatchewan. However,
the near-completion of some of the larger projects is contributing to
declining investment in non-energy mining as suggested in the CAPEX
survey.

The RBC Economics Provincial Outlook assesses the provinces according to
economic growth, employment growth, unemployment rates, retail sales,
housing starts and consumer price indices. The full report and
provincial details are available online as of 8 a.m. ET today.

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